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The state of dynamic discounting in B2B payments

06/24/2020 By

There is both a demand and supply side when it comes to early pay programs that are done via dynamic discounting.

There is no argument that the demand for early payment on invoices is as strong as ever — that is to say, if you have invoices to generate. In the coronavirus era, many businesses have lost significant revenue. For example, businesses serving the U.S. hotel & food-services industry have shed 40% of jobs from January to May, and received only 8% of the government’s small business loans.

Many see early pay via dynamic discounting as a win-win — help suppliers get cash, and buyers manage cash at much better yields than alternatives.

For suppliers, it’s easy to present the advantages to make a yes/no decision — get paid early with a known discount, predictable cash flow and don’t worry about onboarding hurdles that most supply chain finance programs are burdened with.

Some platforms can even segment suppliers (women-owned, minority-owned, veteran-owned, etc.), and provide different rates to different suppliers across geographies. What’s not to like for those suppliers in critical need of cash? After all, it is a choice. And we all like having choices, and not the Hobson’s choice kind.

But let’s explore the supply-side for a second. There are a number of factors at play in a COVID-19 world, some favorable and some not-so-favorable, that make one pause for consideration.


  1. Short-term investment returns are so low that businesses (and consumers) may soon be paying banks to hold our deposits (i.e., deposits become the new insurance product). Certainly getting 4%, 6% or higher yields on early payment is super attractive when you can barely buy a cup of coffee from the interest on a $1 million 90-day Treasury.
  2. The significant drawing on bank credit undertaken to shore up cash in the early days of the pandemic. That’s cash in the bank for many firms waiting for some use.
  3. The U.S. corporate bond sales of high-grade companies has already exceeded last year’s total. Again, more cash in the bank waiting for use.  The chart below shows that cash is king for S&P 500 companies lately – Q1 2020 saw 14% increase in total debt + cash and short-term investments vs 4% in prior 3 quarters.


  1. No accounting treatment issues to be wary of — see: Gray Area Abounds on Early Pay Programs

No. 2 and No. 3 equate to lots of cash, and No. 1 equates to treasury receiving a much better return on cash that is parked.

But there are some unfavorable trends if your name is not Facebook, Amazon, Microsoft, Starbucks, McDonald’s, etc.


  1. Upcoming bankruptcies and insolvencies. Whatever number you believe, GDP will decline and decline hard globally, especially for some sectors. We are at a record for corporate bond defaults, both in the U.S. and globally.
  2. Credit downgrades — many companies will be lowered at least one notch by the debt agencies, making supply chain finance even more expensive in this market.
  3. The collateralized loan obligations (CLO) market is in a state of collapse. That’s a cash lifeline for so many companies that are not rated. The chart below shows that loans are being downgraded and defaulting at a high rate, and the worst-case scenario is catastrophic (sea of red in last chart).
  4. Governance issues are being flouted by boards during this time. I will give one example. Briggs & Stratton’s board voted to stiff bondholders on $6.7 million in interest. This is after the board voted to pay $5.1 million in “retention bonuses” to executives and to reinstate full salaries.

So what’s the overall verdict? Many AP automation and e-invoicing companies I have spoken to privately either do not offer a dynamic discounting module or do not have many customer dynamic discounting programs running where companies self-fund. For these vendors, there is no money in that for them unless they take a revenue share, and who is going to agree to that? I much rather negotiate an annual subscription fee. In addition, vendors just don’t share this data. There are no league tables or market share comparisons.

I have heard from others that the programs they run are seeing much higher adoption than normal. That’s to be expected. My point is that only the very select will have their own cash to dedicate to these programs. The coming insolvencies, CLO market concerns and credit downgrades are of grave concern and put only the very select few in a position to offer their cash early to suppliers.

I’d be interested: What do others think?

David Gustin runs Global Business Intelligence, a research and advisory practice focused on the intersection of payments, trade finance, trade credit and working capital. He can be reached at dgustin (at)